1. There is a sudden and huge increase in oil price. In an efficient market one would expect the stock price of Northeast Airlines Inc. to

a. drop immediately.

b. remain unchanged.

c. increase immediately.

d. gradually decline for the next several weeks.

e. gradually increase for the next several weeks.

2. Nicholas Manufacturing just announced yesterday that its 4th -quarter earnings will be 10% higher than last years 4th quarter. You observe that Nicholas had an abnormal return of 1.2% yesterday which was very significant.

This suggests that

a. the market is not efficient.

b. Nicholas stock will probably rise in value tomorrow.

c. investors expected the earnings increase to be larger than what was actually announced.

d. investors expected the earnings increase to be smaller than what was actually announced.

e. earnings are expected to decrease next quarter